It's always smart to keep a close eye on the competition. Where are companies like yours investing their money outside the United States?

According to the United Nations Conference on Trade and Development's World Investment Report 1999, published in September 1999, the top investment destinations in 1998 were the United Kingdom, China, the Netherlands, Brazil and France (see chart).

And there was plenty of strategic spending going on last year. Foreign direct investment (FDI) around the world rose sharply -- by some 39 percent -- to US$644 billion. The bulk of that increase came from cross-border mergers and acquisitions, such as Daimler-Benz's acquisition of Chrysler and BP's acquisition of Arco. Still, billions were invested in bricks and mortar: new manufacturing plants, offices and other corporate facilities.

The United States continues to be the world's single largest host and home country for FDI. In fact, the U.S. slice of the global FDI pie increased by $82 billion to $193 billion in '98 (see feature elsewhere in this issue). North American neighbors Canada ($11 billion) and Mexico ($10 billion) also attracted large amounts of foreign investment.

In terms of the world's major economic regions, though, Europe is the top competitor. The 15-member European Union (EU) alone attracted $230 billion in FDI last year -- up $100 billion from 1997. What's more, EU firms' FDI spending soared to $386 billion, making the EU the world's biggest FDI source.

Europe: Britain Leads the Way
The United Kingdom has led the EU in FDI inflows for years. That trend continued in 1998, with Britain racking up some $63 billion in new investments, or more than twice as much as its nearest European competitor. The United Kingdom, of course, is the biggest EU market not participating in the euro (e.g., the single European currency). It's still very early in the game, but monetary union seems to have had little effect on European FDI trends thus far.

France ranked No. 2 in FDI among European countries last year with $28 billion, followed by Belgium and Luxembourg (with a combined total of $21 billion) and Germany ($20 billion).

FDI into Russia fell drastically in 1998, from $6 billion to $2 billion, following the country's economic downturn and the drying up of privatization-related investments. However, FDI into central and eastern Europe overall reached a new high of $16 billion, led by Poland ($5 billion) and the Czech Republic ($2.5 billion).

China Dominates Asian FDI
China continues to be Asia's single largest (and the world's third biggest) FDI recipient. The world's most populous nation lured some $45.5 billion in new FDI in 1998 -- virtually the same amount it attracted the previous year. Singapore came in at No. 2, with $7.2 billion, followed by Thailand ($7 billion) and Korea ($5.1 billion).

FDI into developing Asia ($78 billion) fell 7 percent last year, the first decline since the mid-1980s. But that decrease was due almost entirely to reduced flows into Taiwan and Indonesia.

Observers say the shortage of capital in Asia, combined with the recognition of the role outside investment can play in restoring economic growth, is leading to an increasingly accommodating attitude toward FDI in virtually all the Asian economies. China last year restored some of its investment incentives that had been abolished earlier, particularly for high-priority industries.

Japan's 1998 FDI take ($3.2 billion) pales in comparison with that of most larger countries. Moreover, Japanese companies' investments in other countries fell 7 percent last year to $24 billion. "Prospects for significantly higher FDI by Japanese transnational corporations are not very promising in the near future," predicts the World Investment Report 1999.

South America: Brazil's Where the Action Is
Brazil, with almost $29 billion in foreign investments last year (up $10 billion from 1997) is easily the dominant South American player in attracting FDI. Privatization activity accounted for about one-fourth of that amount.

Perhaps reflecting the economic turbulence battering many emerging markets, most of the other major South American countries (including Argentina, Chile, Colombia and Venezuela) experienced a reduction in FDI in 1998. The exceptions: Ecuador and Peru.     SS